Taxing digital economy

21.9.2017-The European Commission is today launching a new EU agenda to ensure that the digital economy is taxed in a fair and growth-friendly way. The Communication adopted by the Commission sets out the challenges the Member States currently face when it comes to acting on this pressing issue and outlines possible solutions to be explored. The aim is to ensure a coherent EU approach to taxing the digital economy that supports the Commission’s key priorities of completing the Digital Single Market and ensuring the fair and effective taxation of all companies. Today’s Communication paves the way for a legislative proposal on EU rules for the taxation of profits in the digital economy, as confirmed by President Juncker in the 2017 State of the Union. Those rules could be set out as early as spring 2018. Today’s paper should also feed into international work in this area, notably in the G20 and the OECD.

The current tax framework does not fit with modern realities. The tax rules in place today were designed for the traditional economy and cannot capture activities which are increasingly based on intangible assets and data. As a result, the effective tax rate of digital companies in the EU is estimated to be half that of traditional companies – and often much less. At the same time, patchwork unilateral measures by Member States to address the problem threaten to create new obstacles and loopholes in the Single Market.The first focus should be on pushing for a fundamental reform of international tax rules, which would ensure a better link between how value is created and where it is taxed. Member States should converge on a strong and ambitious EU position, so we can push for meaningful outcomes in the OECD report to the G20 on this issue next spring. The Digital Summit in Tallinn will be a good occasion for the Member States to define this position at the highest political level.In the absence of adequate global progress, the EU should implement its own solutions to taxing the profits of digital economy companies. Today’s Communication outlines the Commission’s long-term strategy, as well as some of the short-term solutions that have been discussed at EU and international level so far. The Common Consolidated Corporate Tax Base (CCCTB) in particular offers a good basis to address the key challenges and provide a sustainable, robust and fair framework for taxing all large businesses in the future. As this proposal is currently being discussed by the Member States, digital taxation could easily be included in the scope of the final agreed rules. However, short-term ‘quick fixes’ such as a targeted turnover tax and an EU-wide advertising tax will also be assessed (see MEMO).

Next steps

As announced at the informal ECOFIN of September, the Estonian Presidency will continue working on these issues with a view to having clear and ambitious Council conclusions by the end of the year. These conclusions should act as the EU contribution to international discussions on digital taxation, and lay the basis for future work in the Single Market.In the meantime, the Commission will continue to analyze the policy options and consult with relevant stakeholders and industry representatives on this important and pressing issue. The Commission looks forward to the OECD’s report to the G20 in spring 2018, which should set out appropriate and meaningful solutions to taxing the digital economy at the international level and which can be integrated into the upcoming Commission proposal for binding rules in the EU’s Single Market. If this is not the case, the Commission will, in any case, be ready to present an original legislative proposal to ensure a fair, effective and competitive tax framework for the Digital Single Market. More: here